(Pokhara University Affiliate)

MID TERM EXAMINATION

Level: Bachelor (Spring Semester) Year: 2020
Programme: BBA Full Marks: 100
Semester: II Pass Marks: 45
Course: Introductory Microeconomics Time: 3 hrs.
Candidates are expected to answer the question in their own words as far as practicable.
The figures in the margin indicate full marks.
Instructions to students:
 Read the questions carefully and confine your responses to an analysis of the
questions as written.
 You have 3 hours to complete your exam and 2 hour to submit your scanned
answer sheets in College MIS system in PDF Format.
 The answer script should be handwritten by the examinee himself/herself. If
found to be written by others, typed on a computer, carbon copied, copied from
a book, or any other method used, such answer sheets will be automatically
discarded
 The scanned size of the answer sheet should not exceed more than 20 MB and
should be compulsorily in pdf format
 Upload your scanned answers in College MIS system in respective subject.
 Write page numbers on each pages of your answer sheets.
 Write your name/ semester or Trimester/ and roll number on each answer
sheets.
 Please leave 1 inch margin on both left side as well as right side of your answer
sheets.
 This is timebound open book examination therefore candidates have to submit
the answer sheets on defined time frame.

Section A
Descriptive Answer Questions
Attempt any FOUR questions. (4×15 = 60)
1. Prof NG Mankiw has analyzed some fundamental principles of Economics.
What are they? Explain all of them.
2. “Economics is the study of the optimum utilization of the scarce resources.”
Do you agree? Justify your answer.
3. Suppose the demand function Qd=3200-20P and supply function
Qs=200+80P, make a table showing demand and supply at different price
 levels. Also find equilibrium price and quantity on table and show them in
the graph/diagram. Interpret the result as well.
4. The demand for an Introductory Microeconomics text is given by
Q = 40000 – 100P. This book is initially priced at Rs. 50.
a) Compute the point elasticity of demand at Rs. 50. Interpret your
result.
b) Complete the Arc elasticity for the price decreases from Rs. 50 to Rs.
80. Interpret your result.
5. Define elasticity of demand. What are the determinant factors of elasticity
of demand? Discuss specifying different degrees of elasticity with diagrams
and examples.
Section B
Analytical answer questions.
6. Read the following case carefully and answer the following questions.
( 5x8=40 )
Nepal has a long history of tea cultivation. Planting of a tea plant in Illam
150 years ago is considered as the beginning of tea cultivation in Nepal.
Scientific development and promotion of tea started after Nepal Tea
Development Corporation was established in 1966. Commercial tea
cultivation spread to Panchthar, Tehrathum, Dhankuta and Jhapa districts
within after starting in the hills of Illam. These five districts were declared
tea zone in 1981 due to their huge potential.
Despite the huge production potential, labor problems are one of the major
problems of the tea industry. Frequent strikes leads to a decrease in
production of tea.

Demand for Nepalese tea is increasing not only inside the country but also
outside the country. Due to the increasing demand for tea, its price is
increasing day-by-day. However, supply of tea is inelastic because
opportunities to expand production are limited. In the long run, supply is
more elastic because production of tea can be expanded to other districts
like Taplejung, Lalitpur, Kavre, Lamjung, Nuwakot, Solukhumbu and
others.

The whole country can reap benefits if tea cultivation is promoted. It is

unfortunate that the government has still not been able to provide adequate
facilities and subsidies for tea cultivation despite it being an economically
important crop. The Indian government provides grants and subsidies to
the tea industry in Darjeeling district adjoining Illam and Taplejung of
Nepal. Many factories in Darjeeling procure tea leaves from Nepal and sell
them abroad as their own products. The Indian government has also been
providing grants and subsidies for tea cultivation in the state of Assam.
Another neighboring country Sri Lanka, like India, has also been providing
facilities to the tea industry. It is necessary for the Nepal government to also
give special priority to the tea industry.

Questions:-
a. By the aid of demand and supply curve, show how the price of tea is
affected by foreign demand.
b. How do labor problems affect the price? Explain.
c. Draw a diagram that shows both short-run and long-run supply
curves.
d. Show how the market first moves to a short-run equilibrium and then
to long-run equilibrium and also comment.
e. Does Indian policy affect the tea industry of Nepal? Give your
suggestions to improve this industry.